Can I Deduct Phone Costs on Schedule C?

by Lee Nichols, Demand Media
    Deducting the wrong expenses may delay processing of your income tax return.

    Deducting the wrong expenses may delay processing of your income tax return.

    As a business owner, one way to save money is taking all of the business deductions allowed by the Internal Revenue Service. Because a phone is indispensable for most businesses, you can deduct many of the associated costs using the income and loss report on Schedule C. Not all phone expenses are deductible, so knowing which ones are acceptable and which ones are not is imperative if you want ensue proper preparation of your income tax return.

    Home Phone

    If you use your home phone for business calls, you can deduct some of your phone expenses. While you cannot deduct the cost of basic service for the main line into your home, you can deduct the long-distance charge for any business-related call. You can deduct the total cost of a second line or voice-over-Internet-protocol (VOIP) service as long as you installed the line or VOIP service specifically for your business. Because extra phone lines and VOIP services require additional equipment, your dual-line phone, VOIP box and any installation charges are also completely deductible.

    Cell Phones

    Deducting cell phone costs was once a time-consuming task. You had to calculate the percentage that the phone was used for business use -- as opposed to personal use -- to determine your deduction amount. In 2010 the IRS removed that requirement. As long as having a cell phone is a necessary and ordinary expense for your business you can deduct all of the costs related to ownership. If you provide cell phones to your employees, you can deduct the expense as long as you have a substantial business reason for doing so. You can depreciate the purchase price of the phone over seven years and, if you use the phone more than 50 percent of the time, take a Section 179 deduction.

    Schedule C

    Use line 25 on your Schedule C to deduct your land-line expenses. Include your cell phone expenses on Part 5 of your Schedule C. After totaling your other expenses, write the amount on line 27a. Use Form 4562 to calculate any depreciation and Section 179 deduction. Enter the total on line 13 of Schedule C.

    Qualified Joint Venture

    If you and your spouse own a business together and fulfill the requirements of a qualified joint venture, you can still deduct your phone costs as a sole proprietor. Both of you must contribute to the business and file a joint return, and neither of you can request treatment as a partnership if you want to report you business's profits and losses on Schedule C. The IRS requires that you share all income, deductions, losses, gains and credits according to your respective shares of the business. For example, if you both work the same amount of time and provide the same amount of funding for the business, you share all gains and losses equally, and each of you files a Schedule C reporting 50 percent of the gains and losses.

    About the Author

    Specializing in business and finance, Lee Nichols began writing in 2002. Nichols holds a Bachelor of Arts in Web and graphic design and a Bachelor of Science in business administration from the University of Mississippi.

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